Gaming giant Aristocrat Leisure has confirmed that it will pay $40 million to settle a class action by disgruntled shareholders under a deal ratified by the Federal Court.
The total payout to shareholders is expected to be more than $144 million, with indemnity insurance likely to make up the gap between that figure and Aristocrat’s payment.
The $40 million payment didn’t help in what was a dark day for the company as it reported a 43% drop in net profit to $71.4 million for the first half of 2008.
The Aristocrat case is one of several major class actions brought by shareholders alleging losses suffered as a result of companies failing to properly disclose their true financial position.
Its resolution will give hope to plaintiffs in other class actions currently in train against companies including Allco Finance, Octaviar (formerly MFS), Centro and ABC Learning and will provide a further incentive for lawyers to keep a lookout for possible class actions.
Slater & Gordon principal Van Moulis is currently working on several corporate class actions including the billion dollar Centro case. He says the Aristocrat result is likely to be the first of several in similar cases.
“It usually takes about three or four years for these claims to work their way through the system and get them to the stage where parties might want to settle or you get a result, so that’s why we’re only beginning to see the fruits of these cases now,” Moulis says.
He says a settlement was always on the cards in the Aristocrat case because the plaintiff’s had a relatively strong case.
“It seemed to me that in that case there was strong evidence of wrong doing and it was inevitable they would get a successful outcome, whether that be in judgement or settlement, so there are no surprises in the result or the quantum,” Moulis says.
The settlement also means the company avoided giving rise to a potentially useful legal precedent that could be used by other shareholder litigants in their cases.
Moulis says Australian courts have yet to accept the “fraud on the market’ principle that has formed the basis of successful results for shareholder class actions in the US.
“That argument was put in the Aristocrat case and everybody was waiting for the decision. Now the wait will continue, but we think it has a good chance of ultimate success and we intend to run that theory in several of our cases.”
But even if that principle becomes accepted in Australia, Moulis says it won’t trigger a US style flood of shareholder class actions against companies.
“There are safeguards built into our system that mean class actions will be few and far between, for example in the US there is no risk of an adverse cost order if you lose proceedings, that is a huge discipline here.”
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